FOs may escape the worst of US regulatory reform

Article |
16 July, 2010 04:57 PM

A leading expert believes family offices are likely to escape greater scrutiny from the Securities & Exchange Commission after the US Senate voted for one of the biggest regulatory changes to the financial sector for years.

David Guin, a New York-based partner at the private client law firm Withers, said he feels confident that family offices will be exempt from the Dodd-Frank Act passed yesterday in Washington.

"Family offices have come off better than expected," said Guin.

"The family office community mobilised and did a good job of educating Congress that it didn't make sense to regulate family offices. The SEC has also made it pretty clear through exemptive orders that it does not want to regulate family offices."

Guin added that when president Obama puts his final signature on the Act next week, most should feel confident that they will be exempt from registering with the SEC.

When it comes to investment firms, the Dodd-Frank Act is primarily aimed at hedge funds and private equity firms.

But its primary aim is designed to avoid taxpayers' money being used to bail out banks again. As Barak Obama said: "The American people will never again be asked to foot the bill for Wall Street's mistakes."

However, Guin did say it is now up to the SEC to define what a family office is and whether they will be caught in the regulatory net.

"The battle is not over yet. We are still no clearer what the definition will be as a result of this legislation," he said.

And when it comes to the treatment of family office employees, Guin has some concerns.

"At the last minute a provision was added that family offices that were in existence as of 1 January 2010 and had officers, directors or employees participating on a co-investment basis as of 1 January 2010 would not be excluded in the SEC definition," he said.

Guin said family offices should look at their employee contracts to see whether they will be affected and may need to rearrange how they should compensate and incentivise employees.

"We can safely assume that the SEC's definition will be overly complicated and will contain some surprises – they don't want to caught unaware again," he said.